Is the Administration Offering Insurers an Obamacare Bailout?

Chris Jacobs /
November 14, 2013

AFP PHOTO/Brendan SMIALOWSKIBRENDAN SMIALOWSKI/AFP/Getty Images

The Centers for Medicare and Medicaid Services (CMS) today released guidance to state insurance commissioners implementing President Obama’s “fix” for people losing their insurance. Not only does it violate the explicit text of Obamacare itself, but it also raises the possibility of insurers getting access to a new pool of bailout funds.

As previously reported, the Administration’s latest plan waives many of the costly mandates included in Obamacare that are scheduled to take effect on January 1, 2014. The guidance says that these requirements will be waived—in clear violation of the text of the law—for one year for all plans renewed between January 1, 2014, and October 1, 2014. CMS also implies these waivers could be extended, stating it will “assess…whether to extend [the waivers] beyond the specified timeframe.”

However, the real story is buried in the final paragraph of the three-page memo, where CMS implies it is exploring options to provide additional payments to insurers to offset their losses from this Obamacare debacle:

Though this transitional policy was not anticipated by health insurance issuers when setting rates for 2014, the risk corridor program should help ameliorate unanticipated changes in premium revenue. We intend to explore ways to modify the risk corridor program final rules to provide additional assistance.

To translate into English: If some Americans can keep their pre-Obamacare health plans next year, they will not enroll in the Obamacare exchanges. That means the enrollees in the exchanges are likely to be sicker than insurers previously expected. Already this afternoon, the health insurance industry trade association has alleged the President’s “fix” could have a significant impact on premiums in the marketplace, for that very reason.

The CMS guidance today raises the possibility of using Obamacare’s risk corridor program to compensate insurers for these losses. Briefly stated, the risk corridor program shifts funds among insurers—it minimizes losses from carriers with sicker-than-expected enrollees, by redistributing gains from carriers with healthier-than-expected enrollees.

But as has been noted elsewhere, the risk corridor program “doesn’t need to be budget neutral; if the math demands it, the government can pay out more than it collects through the program.” CMS’s comments today imply that it’s contemplating exactly that—undoing the concept of budget neutrality for the risk corridor program, and using it to compensate insurers for their losses.

According to the Congressional Budget Office, Obamacare already gives more than $1 trillion in subsidies to insurance companies over the next 10 years. President Obama’s extra-legal “fix” could now result in the Administration offering insurers a bailout totaling billions of dollars more. It’s one more reason why there is only one real Obamacare “fix,” and that’s scrapping the law entirely.